Blurring the lines between independent contractor and employee could cost your business. These best practices will help keep the distinction clear.
1. Agree on an agreement
Don’t do business with an independent contractor until you have a signed legal agreement. The agreement needs to establish that the contractor is not an employee of your company. In addition, it should state that the contractor is responsible for his or her own insurance liability and worker’s compensation.
2. Fill out the required forms
A W-9 form needs to be completed by the contractor before beginning any work. And you're responsible for issuing a 1099 by January 31 the following year for tax purposes. One more paperwork tip – always request an invoice for work completed. Having an invoice helps validate independent contractor status.
3. Don’t micromanage
When it comes to performance management, focus on your contractor’s final results –rather than overseeing day-to-day activities. In addition, allow independent contractors to set their own hours. The exception is if your contractor needs to work scheduled times with your employees or customers. If that’s the case, you can request specific timeslots.
4. Pay by the project
It’s best to pay contractors according to a “statement of work,” or project summary. To help maintain independent contractor status, you should shy away from paying an hourly rate. A true independent contractor typically is paid for their final results (whatever the estimated time), not per hour.
5. Keep your equipment to yourself
The same goes for uniforms, office supplies and other materials. Generally, contractors should use their own materials for the work performed. You should avoid providing a designated, long-term workstation, too, as contractors shouldn’t have a permanent office at your business.